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Book review: The Econocracy

I have just read a fantastic economics book. In entertaining detail, it outlines many issues in the economics profession that I feel strongly about [1] Like the authors, I want my discipline to evolve into one that is much better than it is; more practical, humble, and diverse. So why did I finish the book feeling less than upbeat?

The book is called The Econocracy: The perils of leaving economics to the experts. It is about how the general population has been excluded from public policy debate by an inward-looking economics profession. More than this, the profession is fundamentally failing, having grown in the past three decades to become nothing more than ideology masquerading as science.

Econocracy is written for people with some economics training, or with a keen interest in economics. Or perhaps even someone who is simply concerned about public policy debates being hijacked by economists and their jargon would appreciate it, and I can imagine there are many such people!

I would summarise the main story of the book as follows

Economics is now the default method of analysis in serious social and political debate, undermining the legitimacy of other modes of analysis, making anyone who doesn’t understand economics and its jargon unable to participate in the major political debates of our time.

Despite the great power granted to economists, the discipline has become nothing more than a narrow ideology, with that last defining theoretical battles happening back in the 1970s, and little openness to criticism or new ideas since.

Changes in how economists and their discipline function could benefit democracy. These changes are a) economists training their next generation in a more pluralist way, giving them exposure to many methods of analysis to avoid the ideological indoctrination that is economics education and b) economists being less insular by reaching out to the public to promote a culture of “citizen economists”, who have sufficient understanding and confidence to bring their groups to the table and participate effectively in policy debate.

I will admit my bias upfront and say I needed no convincing of the first two points. Let me see which part doesn’t quite inspire me as much as I expected.

What is an econocracy?

In the words of authors – Joe Earle, Cahal Moran and Zach Ward-Perkins (EMW) – an econocracy is

A society in which political goals are defined in terms of their effect on the economy, which believed to be a distinct system with its own logic that requires experts to manage it.

I am totally on board here. Making policy in order to nurture a thing called an economy is bizarre, bordering on meaningless. The slightest scrutiny reveals that the economy is whatever economists assume it to be.

When we think of Gross Domestic Product, probably the main measure of the ethereal thing we call the economy, we are actually thinking of a measure whose definition has changed dozens of times. The latest change of note is the inclusion of illegal drugs and prostitution in the European Union offical GDP statistics. So is crime now part of the economy? And if so, is it good or bad to have more of it?

Examples like this are common, yet routinely ignored. They reveal that when you define an economy, you are making moral judgements about what is good or bad for society. Economic growth is only good if you agree with the hidden moral judgements that sneak in when you define the economy.

Bringing insights like this to the surface can connect economics to a broader audience. Many people want to put forward their views in political debates about what constitutes a good, and just, society, but are bamboozled by economics jargon, which seems to leave no place for them. Cloaking policy debates in economic jargon limits participation from those who simply want to express their valid moral judgements about how society should be run.

Not only is the economy now the exclusive subject matter for experts who hide their moral judgements, these experts often hide their financial interests as well. If you have seen the 2010 film Inside Job, you would know how prevalent this is, particularly in the economics profession. I can personally attest to the troubles of even getting economists to recognise that they may have ethical obligations. But perhaps that is because their training was so narrow and uncritical.

Fixing a failing discipline

The decline of critical thinking in economics is beautifully told in the chapter entitled Economics as Indoctrination. For anyone considering studying economics, and for its many of teachers, this chapter will resonate.

EMW make their case that economics courses are best described as indoctrination by presenting the results of a curriculum review they conducted covering 174 economics modules at seven Russell Group universities. Their data is revealing, and provides indisputable evidence that the discipline trains its newcomers in a narrow, uncritical, and unrealistic way.

As a teacher of economics their survey results were fascinating, but not surprising. Multi-choice questions and lack of critical thinking seem to dominate assessment at the two universities I have taught at, while neoclassical methods of optimising representative agent models are the default, and sometimes only, approach taught. If anything, this chapter is a call-to-arms for teachers of economics everywhere.

EMW propose that teaching in a more pluralist and critical way is the answer. Many of the core parts of an economics course would be kept, and some replaced with a more diverse set of ideas and methods. No longer would material be presented uncritically as religious icons to be believed, not challenged, but each idea would be pulled apart and rigorously scrutinised.

However, the battle for change in teaching cannot be underestimated. Just look at the profession’s reaction to the efforts of EMW and their allies at the Post-Crash Economics student group.

The main reaction as has been “change without change”. A group of alternative reformers agree with EMW that the teaching of economics is poor (though in the quality of the teaching, not the content), and have endeavoured to fix it with better teaching materials, producing an updated textbook for the 21st century called Core Economics. Unfortunately this group missed EMW’s central critique – the content should also change!

EMW respond to the Core Economics project in their book. But I don’t think they quite see it as the defensive strategy of a powerful group that it is in reality. To me, this reaction is a signal of the political and financial power of the status quo in economics, and the enormous challenge ahead.

There are other problems I see with their pluralist solution. Teaching a pluralist curriculum requires teachers who actually understand alternative non-neoclassical approaches to economics in all their nitty-gritty detail, so they can be equally taught in a thoughtful and critical manner. There are very few of them.

And to make space for this type of pluralist teaching means dropping parts of the current core economics modules. Which ones should go? Egos will be damaged in this process.

I have personally tried to improve my teaching multiple times, only to find that dropping particular materials and including other new material, combined with more critical and reflective assessment pieces, has been frowned upon by others in the school. Particularly if they are teaching modules later in the course that build on the material that I chose to drop. Some kind of collective choice needs to be made about what topics to drop, and what to keep. And it is inescapable that such a choice will signal to many professors in positions of power that their careers have been wasted on things the discipline now considers to be nonsense, and not worth teaching.

Having an academic tribe that conforms to the same approach gives that tribe power. Notice the book is not called “sociologocracy” or “political science-ocracy”. Disciplines that do teach a variety of methods in a pluralist way typically end up losing credibility to outsiders because of the infighting within the discipline about fundamental issues.

I would recommend the book Economists and the Powerful: Convenient Theories, Distorted Facts, Ample Rewards, by Norbert Häring, which explains how neoclassical economists and their methods become powerful because of a feedback loop between the theories they created, and the support of the political classes who benefited from those theories. Economics as a discipline is now very powerful, and its uniformity maintains its power.

These incentives mean that change needs a grand coalition, rather than a slow evolution of improving the curriculum one module at at time. Past efforts of student groups have sought similar reforms in economics for nearly thirty years without success. I don’t think EMW see the sheer size of the political challenge their proposed reforms face. I do. And that’s probably why it is hard for me to get too excited.

Reaching out

To shift society away from an econocracy to a democracy, EMW also see benefits from economists as a group reaching out to the public to make accessible the technocratic analysis of themselves and their peers. A survey the authors conducted of 1,500 adults across the UK found very low levels of economic literacy in the general public, meaning the economic jargon being sprouted by politicians and the media each day is not actually communication useful information to voters.

I agree whole-heartedly with this proposal. It only takes a few economists to reach out and teach active community groups to be savvy about, rather than intimidated by, economic analysis. And if such efforts result in greater participation from community groups in all spheres of life, it may undermine the demand for bogus economic analysis by vested interests who use it as a shield against criticism.

This idea has promise because it generates change outside the discipline. I simply do not see a way for economics to reform itself from the inside. The only way to change, that I see, is for the rebels and reformers to form a new discipline. Perhaps reaching out to the public is the start of that, which will develop a network of ‘citizen economists’ who are able to share knowledge, and through their networks and organisations, create a demand for work of people trained in this new discipline.

Call this new disciple something catchy, then agree broadly on its scope, some guiding philosophies, then add in some ethical standards. Get the major institutions of the country involved, like the Bank of England, to give it credibility. With some luck this rebel group will soon develop a reputation as being the superior discipline to economics, or what would soon become known “out-dated economics”.

Anyone who has studied powerful informal groups and networks knows that radical change usually comes from outside, while insiders go down clinging to their old beliefs and denying that reform is necessary. The book itself the work of three outsiders; students from Manchester who were able to see the tribe with clear eyes, and a clear head.

I can only hope that with such bright and critical minds as theirs entering the discipline, that the time may be ripe for change, either from within the discipline, or with new leaders rising up to change it from outside. Whatever the case, while I finished the book a little glum, I have finished this review much more upbeat, ready to push for change wherever I can.

fn [1]. I have a PhD in economics, teach graduate economics courses at The University of Queensland, and consult widely for non-profit groups to help them participate in policy development. An important disclaimer is that I have also been peripherally involved with Rethinking Economics, a group very much aligned with the reform efforts of the authors and their student group Post-Crash Economics. The authors provided me a complimentary copy of the book.

Harrell’s Regression Modeling Strategies. It has the unusual property for a stats textbook that reading it, and applying its advice, is likely to lead to improvement in the quality of your data analysis (Gelman and Hill also has this property, and is in some ways complementary while accessible to readers with less mathematics)

The problem isn’t economic theory, its the reliance on economic modelling, forecasting for policy setting. The mathematical complexity of a model doesn’t make it any more correct. You need to actually have a theory and set of principles that can explain human behaviours, what is going on a market and why certain events cause certain outcomes in plain english.

And journalists who report on this stuff seem to be completely unaware and unqualified, so they just regurgitate what was fed to them in a press release.

If we should just raise the minimum wage to help the poor, then why not raise it $100 / hour ?
If we want cheap medicine, why doesn’t the government just regulate all medicines to be priced at $1 ?

The answers should be obvious, but journos have absolutely no brains to challenge these propositions and think on their own feet.

I think economic concepts are very useful. Most people ignorantly think that good intentions are all that matters.

I think ignorant leftists and socialists are the ones who demonise all mentions of ‘the economy’ as if we treat it as some false god at which we bow and sacrifice everything.

The economy is the resulting outcome of millions of decisions, interactions, purchases, transactions, communications and signalling between millions of complex actors, each having their own unique set of preferences.

Its not some grinding machinery, its very human and its very important to our prosperity and happiness.

Truly Jono, get your head out of micro-money transactions and start reading what great economists from Adam Smith to Stiglitz have read: history, anthropology, sociology, ethics, Philosophy, political theory, scientific method and deep causality… World of difference in understanding economy.

“start reading what great economists from Adam Smith to Stiglitz have read: history, anthropology, sociology, ethics, Philosophy, political theory, scientific method and deep causality… World of difference in understanding economy.”

This is what occurred before economics became an ideological training camp where the topic was down loaded as indoctrination and not introspection…

If we should just raise the minimum wage to help the poor, then why not raise it $100 / hour ?
Yeh Jono.
If we should heat my bath water to 30 degrees to increase comfort, why not increase it to 100 degrees?

The analogy is really weak.
Why don’t you answer your own question ?
What would happen if you raise the minimum wage from $5 -> $10 ?
What would happen if you raise the minimum wage from $15 -> $30 ?
What would happen if you raise the minimum wage from $30 -> $50 ?

The answer is identical in all cases. To pretend that unemployment (or a black market in labor ) does not emerge from pricing people out of the labor market is not wise at all.

The worst failure of economists these days, although it wouldn’t necessarily even be “most of them” who are guilty, is in the assumption that
“the supply of land is fixed” and can be left out of analyses of the causes of prices for anything in which land is part of the supply process.

The corollary to this is total blindness about “economic rent” of differing kinds and magnitudes in land.

This also leads to utterly pointless arcane computer modeling exercises with respect to urban economies. No economic modeler so far that I am aware, is able to answer a question like “why is land 100 times more expensive in real terms in Liverpool than Houston”? They spend decades tuning their economic models for any given city while remaining utterly ignorant of orders-of-magnitude differences between cities, in their land prices relative to incomes, amenity and everything else.

This is like rocket scientists spending decades working out the trajectory of solar system exploration modules empirically, based on past performances, while remaining ignorant of the difference in gravitational pull of a larger planet versus a smaller one.

Maybe it has to do with completely different dynamics over equally different historical context…. one place vs the next is problematic do to significant time and space issues… cookie cutter optics fails to make such complex distinctions…

disheveled…. lastly is this a comprehensive long term trend, what happens when it matures, seems a bit ridiculous to judge such complicated matters buy RE costs and migrations alone. What happens when some other state underbids TX a la what Walmart used to gain so much market share…. eh…

Precisely why I use Liverpool as the comparator. When the response is that the difference is that “no one wants to live in Houston”, the person responding is beyond help. Houston has been adding population at the rate of 10 to 20 percent per decade, for decades, while Liverpool’s population halved. In fact Liverpool is comparable to Detroit, which has land values something like 3 times lower again, than Houston.

The obvious explanation is some form of restriction on the rate at which rural land can be converted to urban use. There is no such restriction in any city with a house price median multiple of 3. This included, for decades, most cities with high median multiples now. The change came when some kind of regulatory interference occurred. In many cases the city’s amenity has fallen, not risen, relative to when it had a median multiple of 3, often due to crowding, congestion and local pollution. Crime has fluctuated up and down with no effect on urban-area median multiples. The price-reducing effect is mostly in specific locations; every city has nice, safer, exclusionary areas. It still remains to be explained why cities with land prices 100 times too high, can also have crime-affected locations in which the land price is still 100 times higher than the comparable locations in the median-multiple 3 city.

Economists would presumably mostly get it, if regulatory rationing was applied to rural land for each product, to prevent over-consumption, with central planners expertise determining this much for wheat, this for barley, this for apples, this for dairy cattle, this for sheep – and the price of food immediately inflated, reflected in higher capitalised rural land values. In fact one presumes everyone would get it, not just the economists. The argument that “it can’t be about supply of land because we know we zoned enough”, wouldn’t stand up in the face of the evidence and the immediate cost-of-living pressures.

The problem with urban land, land for housing, is that these cost pressures are not universal; they are gains to most, initially. So the undeniable, obvious insight is obscured to the most, by self-interest, and to others it is obscured by ideology or even quasi-religious values regarding urban planning.

I don’t reduce the entire thing to supply and demand, I include economic rent. That is the elephant in the room. Your excuses for the differences are just deliberate confusion tactics, baffle em with BS stuff. Obvious what interests you represent.

Thanks Cameron, very interesting, I have shared this with a number of friends. To my knowledge there are only two left wing economists who hold professorships in Australia – John Quiggin and Bill Mitchell. It’s all very lopsided.

I don’t think they have to be “left wing” to be contrarians in the profession of economics. It would help greatly if they had a framework of economics by which they could make accurate predictions. Y’know, like an actual science. You know society is basically finished when the narrative is dominated by voodoo.

Before vested interests and ideological wing nuts got a toe hold in economics the discipline was called sociopolitical theory… economic “science” was a marketing scam to grant a level of scientific gravitas that does not and could never be applied to the discipline.

To be a science you have to use control groups, conclusively prove stuff false, not make up axioms out of the thin air and then fail to update them when they do fail….

disheveled… ignoring externalities for a short term numerical positive with fat tail down the road consequences is not a good look either….

The term ‘innocent fraud’ was introduced by Professor John Kenneth Galbraith in ‘The Economics of Innocent Fraud’, which was the last book he wrote before he died. He used the term to describe fraudulent concepts that were being sustained by the ‘conventional wisdom’ (a term he created in a previous book). The presumption of innocence by those perpetrating the frauds is characteristic of Professor Galbraith’s cynically gracious approach.

This book reviews 7 ‘innocent frauds’ that I suggest are THE most embedded obstacles to national prosperity. The first 4 concern the federal government budget deficit, the 5th addresses social security, the 6th international trade, and the 7th savings and investment.

I begin with the innocent frauds of the budget deficit, because they are the most pervasive and most damaging to both the US and the rest of the world’s standard of living. – snip

+1
Making my way through this book now. Very interesting read.
So many great quotes too:
“What a realistic set of national accounts should show is that instead of using their wealth to invest in producing more to raise living standards, the One Percent lend out their savings at interest to extract revenue from wage earners, real estate, industry and government, shrinking the economy instead of expanding it.”

Around 1970 I enrolled for a correspondence course in economics after having worked in the investment field for about 5 years. Whilst attending a residential course for 2 weeks I suggested to the lecturer that there was an alternative theory to the one he was teaching. I was told this was rubbish and to shut up and listen. He didn’t even listen to my view! I organised to have a drink with his tutor who said this had happened before and that the lecturers attitude was “I am always right”. The tutor added that if I wanted to pass I had to go along with the lecturers ideas and added he sometimes disagreed with the lecturer.
Great way to teach a subject.

MB Fund

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